12 May 2020 | 9:51PM IST

India: PM announces fiscal stimulus equal to 10% of GDP; targets

labour, businesses and middle-class

The Indian Prime Minister today announced a fiscal stimulus package of 20 INR trn, Prachi Mishra
+91(22)6616-9052 |
which is almost equal to 10% of GDP. In his address to the nation on the spread of prachi.mishra@gs.com
Goldman Sachs India SPL
COVID-19 pandemic in the country, the PM gave a purview of preparation by the
government in dealing with the crisis, briefed about the reforms being adopted to
support the economy, and announced the plan to extend the nationwide lockdown,
which is supposed to end 17th May.

The fiscal package announced by the government is way above our expectations of
1-1.2% of GDP. The PM mentioned that the package will include measures for
farmers and labour, address difficulties being faced by businesses as well as
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medium and small enterprises (MSMEs), and cater to the needs of middle-class
people. Although it was not clear from the speech and details are not available yet, it
seems that the package announced today could include some previous economic
measures taken by the government and the central bank to deal with the crisis (RBI
had lowered policy rate by 75 bps to 4.4% in March and had infused liquidity to the
tune of 3.1% of GDP between February and April, as per our calculations. A fiscal
package amounting to 0.8% of GDP was announced by the Finance Minister in
March).

The PM urged greater consumption of local products, which will strengthen the
Make in India movement. He also mentioned that the government is focusing on
land and labour reforms to revive the economy and get investment. FM will provide
details on the fiscal package on 13th May.

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To further stem the spread of the virus, the nationwide lockdown might be extended
a fourth time, with a completely new set of rules and regulations. Details of
Lockdown 4.0 will be announced before 18th May.

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